Will Private Equity Sponsor Your Kid's Little League Team?

A few years ago, I was asked by staffers in then-Ohio Senator Sherrod Brown's office to speak to Democratic Senators at their weekly lunch in the Capitol. Of course, I agreed. Before going I asked the advice of Victor Fleischer, a tax law expert. He'd worked for the Democratic Senate caucus advising on tax policy so he knew the protocols.

"Don't frame anything like you are telling them what to do," he said. "Senators don't like to be told what to do."

On the appointed day, I stood looking up at an ornate ceiling over an ornate room after being introduced by Chuck Schumer. I took a breath and scanned the audience of United States Senators. Truth be told, some seemed more interested in the lunch on their plates than in me, which helped relax me a little. With Victor's advice in mind, I told the story of people in my hometown, including heroin addicts, and 23-year-old suicides, and what Wall Street did to the town's biggest employer, and why the Payless Shoes on Memorial Drive went out of business, and how many people lost their jobs due to the financial engineering of private equity firms, and what all this did to the social fabric of the town.

I am reminded again of this day because Saks Fifth Avenue is now in bankruptcy. Though my hometown was much more of a Sears town than a Saks town, the Saks bankruptcy matters. All these bankruptcies matter.

See the Sears store depicted above? That was in Bryan, Ohio. I shopped there a couple of times when I lived in Bryan to report my book, The Hospital. There's no Sears in Bryan anymore. As of the beginning of this year, five Sears stores remained. Those five aren't likely to last much longer.

I bring up Sears and Saks and my brief moment in the Capitol because, as Robert Kuttner explained in The American Prospect, much of the press, even the business press, skims over the real reasons why iconic retailers like Saks and Sears find themselves in bankruptcy court. Don't worry. I'm not going to go into all the twists and turns of private equity deals. I've learned the hard way that readers' eyes glaze over at the first mention of "mezzanine financing."

Instead I'd like you to think about the broader picture. Most of the business press, and certainly the articles in major news outlets, do not spend much time on the broader picture. Instead, they describe the most proximate causes of the bankruptcies. Almost like boilerplate, they cite the changing retail landscape, online shopping, the influence of Amazon, and so on. Old-school retailers like Sears and Saks just could not compete, they say.

But there's far more to this story than the obvious. Sears and Saks, Toys R Us, Payless Shoes and others have fallen after private equity deals loaded them up with debt, paid out huge dividends to the PE firms and their limited partners, then left them crippled. Then they were unable to compete. Have you walked into, say, a Lowes recently? It's a brick and mortar store and every time I go it's full of customers.

To me, the bigger story is what all this looting does to communities. News reports will often include the number of layoffs of people who work directly for the companies – 16,000 people at Payless – but almost never talk about the social fabric of those towns. A Sears store wasn't just a store, not just a place to buy a wrench, a pair of overalls, or a refrigerator. In lots of places, a Sears was a town anchor, just like other local businesses. The PE bandits aren't just gutting companies, they are helping to gut places. And they are helping to gut the faith of people in their own country.

If the United States is supposed to be a capitalist nation, if we are supposed to believe in capitalism, what happens when capitalism itself becomes the enemy of the people? I think we are finding out right now.

In my forthcoming book, The Mayor, I describe how private equity looted the hospital serving Chester, Pennsylvania. That hospital is now closed. People have died because that hospital is closed. PE is killing people.

Over and over again, people like Victor Fleischer have proposed reforms, and over and over again, politicians of both parties have promised to squash private equity abuses, and over and over again, they have failed to do so. This is why, to this day, I regret following Victor's advice to not tell senators what to do. I was too polite, too concerned about the protocols, just as too much of the press has been too polite. We're at the point where politeness is getting people killed.

What I should have said, what I wanted to say, was "Screw your goddamn campaign contributions. Do your jobs and protect your communities." Today, I would add "Pass Elizabeth Warren's Stop Private Equity Looting Act!."

Of course, I'd never be asked to speak again, but I no longer care.